“We’re built for resilience”: How Magellan is navigating income in uncertain times

With equity markets at all-time highs and rate cuts back on the table, it’s a confusing time for income investors. But for Ofer Karliner, Co-Portfolio Manager of the Magellan Infrastructure Fund, this environment plays directly to the strengths of the asset class.

“Infrastructure businesses have very robust cash flow and profound competitive advantages,” Karliner explains. 

“That means stability – and stability matters more than ever right now.”

In this wide-ranging Q&A for Livewire’s 2025 Income Series, Karliner unpacks why infrastructure remains one of the most reliable sources of income, how the Magellan team is managing risk, and where he’s seeing long-term value.

Rates, resilience and the macro backdrop

One of the most pressing questions for investors today is interest rates. With inflation cooling and central banks pivoting toward cuts, what does that mean for infrastructure?

It’s good news, says Karliner. But with caveats.

“The market reacts to nominal rates, and falling rates are helpful. They mean lower debt costs and a lower discount rate.”

But he cautions that it’s the reason behind the move that matters, not just the direction of rates. If rate cuts reflect economic weakness, infrastructure is still well-positioned.

“Because these businesses are so stable, they tend to outperform in downturns,” he says. “You get the benefit of falling rates and the protection of steady cash flows.”

Inflation protection built in

Infrastructure also offers strong inflation protection. Firstly, through regulation and price-linked contracts, but also due to the very nature of the assets.

“Tolls go up, but debt is generally fixed,” Karliner notes. “Short-term inflation spikes can actually be a net positive.”

The real risk, he adds, is when inflation becomes entrenched, pushing up real interest rates. But overall, the portfolio is well insulated from the most common inflationary shocks.

Where Magellan is finding value

One area where Magellan is leaning in is Europe. Despite global markets reaching record highs, Karliner believes many infrastructure names, especially in Europe, remain attractively priced.

“Europe was screamingly cheap at the start of the year. It’s still cheap now,” he says.

Some of the UK’s regulated utilities, such as water companies, continue to trade at discounts. And despite concerns around US valuations, Karliner sees that market as resilient in the long term. Though it may be overdue for a ‘breather’.

“US exceptionalism was being talked up a lot last year,” he says. “That kind of language sets off alarm bells for me.”

Structural growth tailwinds

The fund is positioned for long-term growth as well as value. Karliner highlights several structural trends supporting infrastructure assets.

“Population growth, rising wealth, growing data usage, the energy transition – these are all powerful tailwinds,” he says.

More people means more toll road usage. A larger middle class means more air travel. The explosion in data consumption drives demand for mobile towers. And the global shift to renewables and growing power demand from data centres is creating a decades-long investment cycle in utilities.

All of these trends, Karliner argues, add up to real and persistent earnings growth for infrastructure owners.

Transurban (ASX: TCL): the hidden upside in toll roads

One standout name in the portfolio is Transurban, Australia’s toll road giant. Karliner sees it as a near-perfect example of infrastructure’s income potential.

“They have an exceptional suite of assets with long-term contracts, inflation-linked tolls, and monopoly control,” he says.

In many cases, toll increases are either directly linked to CPI or subject to minimum annual thresholds of typically 4% or more. That pricing power helps drive consistent earnings, which in turn supports steady dividends.

He also points to an often-overlooked feature of toll roads: “option value.”

“If the government wants to do something that touches your toll road, for example to widen, expand, or integrate, they usually have to come to you,” he explains. “That creates hidden upside.”

Why infrastructure works for income

At its core, infrastructure is about cash flow. Most businesses in the fund operate as monopolies or oligopolies, protected by regulation or scale advantages. That means minimal competition, reliable revenues, and controlled costs.

“You’re not exposed to price wars. You’re not vulnerable to economic whiplash,” Karliner says. 

“That translates to reliable income.”

Even in downturns, usage tends to be sticky. People still drive, fly, use their phones, and use electricity. That stability gives infrastructure funds confidence in their income streams and in their ability to deliver for investors.

A personal perspective on risk

In a lighter moment, Karliner is asked about the riskiest thing he’s ever done outside of investing. His answer?

“I went rock climbing in Greece with random people I met at a hostel – no safety gear. I caused a small rockslide and still have a dent in my shin.”

It’s a reminder that while infrastructure investing might not be thrilling, it’s precisely that lack of drama that makes it so valuable in today’s uncertain markets.

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The Magellan Infrastructure Fund holds 20 to 40 stocks that seeks to deliver the stable returns offered by the asset class, while hedging returns from currency movements. Learn more by visiting the Magellan website or fund profiles below.

ETF

Magellan Infrastructure Fund (Currency Hedged) (Managed Fund) (MICH)

Global Property

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Managed Fund

Magellan Infrastructure Fund

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